On 15 February 2022, the Mayor of London, Sadiq Khan, announced he was committing £90M to help unlock more than £500M of private sector investment through green bonds. With the move towards green investment and an increasing focus on Environmental, Social Governance (ESG) strategies, green bonds are rapidly emerging as an attractive proposition for many cities, governments, and private companies.
Green bonds work much like regular bonds (i.e., promise to repay the investor with interest at a future date so funds can be used now) with, of course, restrictions to ESG projects only. The first green bond was issued in 2007. In 2011 around $1.3Bn worth of green bonds were issued, rising to over $30Bn by 2014. In 2022, it is anticipated that the market will be over $400Bn. What, then, is the attraction of these investment tools that is bringing about this exponential rise and who is issuing them?
Obviously, the demand is being driven by the need to address climate change and meet extremely challenging carbon targets. Many of the mitigation measures needed will come at significant cost. The announcement by the Mayor of London suggested funds raised through green bonds could support energy reducing measures in London’s ageing housing and public buildings, in local energy projects and in district heating. These will certainly be needed if London is to meet its net zero ambition by its target date of 2030. But, across the world, green bonds are being used on a wide range of climate projects – from energy, transportation, and waste to improving industrial efficiency and compliance and developing clean technology. Clean water and agriculture and forestry are popular choices in some regions too.
Investor sentiment is also clearly a driver. In one survey, 77% of all aged 25–35-year-olds said they were worried about climate change and 71% of millennials said they’d invest in an ESG/ethical-focused fund through their workplace pension (if it was available and easy to do)1. Increasingly, investors are looking for social as well as environmental benefits in projects.
Almost half of all current green bond issuance is in Europe. London now joins cities which have been leading the way, notably Paris and Stockholm. Cities in North America, too, are increasingly coming into this market with notable waste and water projects in Washington already funded by green bonds. The Biden administration announced, in April 2021, a 50-52% reduction target in US greenhouse gas pollution from 2005 levels by 2030 with plans to be a net-zero carbon emissions nation by 2050. This clarity in intent is anticipated to spark large expansion in green bond activity across the US. Large corporates are also now getting involved. The US telecoms giant, Verizon, added a $1bn green bond package to its existing $2bn issuance in 2021 to support renewable energy generation, evenly split between wind and solar.
Supranational banks make up a large part of the remainder of current green bond issuance and are particularly focused on African and Asian projects. Closer to home the UK government announced in 2021 that it was issuing its first sovereign green gilt with a series of others to follow, and it would launch a green retail product – the first of its kind – via National Savings and Investment (NS&I) to enable individuals to support much-needed infrastructure improvements and create green jobs across the UK.
Green bonds, therefore, can be a key part of a corporate strategy to fund measures needed to address climate change. Resilience First will be working closely with our business members on creating a greener and more resilient future. Full details of all our work on climate resilience and how your business can get involved is available at Climate Resilience Initiatives | Resilience First. If you’d like to find out more about becoming a member, please visit Join us | Resilience First
